Auto Industry Bailout

[aaron]

But, the unions are also responsible for stifling automation at US plants. The big three have some state of the art automated plants in other countries, but they cannot do so here because of the unions ... automation means fewer jobs. But, automation also means less expenses and a competitive edge. So, as long as labor and related costs remain high, US autos will be expensive and not as competitive as their foreign competitors.

Agreed. But in a sense, this blames the union for doing its job - protecting jobs and wages. We have set up an extremely adversarial union-management relationship in this country, while particularly in manufacturing a partnership - working toward quality and efficiency - would have been preferable. But how do you protect the workers you represent when pretty much every advance in plant technology reduces the number of workers needed to run the plant? Arguably the worst sin of the UAW in relation to the ability of the Big Three to reinvent its plants is featherbedding, but for a union there's no easy answer to that when the workers who are to be laid off will probably never find better jobs.

GM is asking for, what, $4 billion to get through the month?

The ENTIRE company can be purchased, at current stock price, for $2.41 billion.

The $4 billion is a cash flow issue, and perhaps highlights is how unlikely it is that anybody would create a new auto company, at least in the developed world. But it's a separate issue than stock valuation.

I expect a vehicle to last 100,000 miles for what they cost.

Only 100,000 miles?

I also think the problme is the union. The UAW served a purpose back in the day when labor laws were non existant or non enforced but not anymore.

Right. Now that God has personally plucked the robber baron type managers from the face of the Earth and has replaced them all with angels....

Remember when Hyundai (sic?) started out... and gave a 7 year warranty?

There was a period of competition in "how long a warranty can we offer", that was dropped when it started to lead to losses. It may help move cars, but it's not sustainable if it's just a gimmick.

I am going to go start that buggy whip factory I have been thinking about. Then, I will INSIST that I am bailed out when no one buys my product.

A fair argument... when people stop buying and driving cars.

Ford sources said it is the sort of plant the company wants in the United States, were it not for the United Auto Workers, which has historically opposed such extensive supplier integration on the factory floor.

What they really mean here is that the UAW has opposed the integration of non-union workers into a union plant. If Ford signed up unionized suppliers and asked the UAW to allow them to operate out of a union plant, they should be able to work things out - and it would likely be easy if everybody was in the UAW. But Ford wants to bring in non-union suppliers, and doesn't want to risk them being lobbied to unionize.

The issue of job categorization (something that extends well beyond the union environment) is really irksome, particularly for those from the outside - as anybody who has organized a presentation at a unionized exhibition center can probably attest. The Big Three should be able to largely accommodate the "that's not my job" phenomenon by structuring jobs and shifts such that the necessary people are on duty to do their jobs at necessary times.

[cdwjava]

Agreed. But in a sense, this blames the union for doing its job - protecting jobs and wages. We have set up an extremely adversarial union-management relationship in this country, while particularly in manufacturing a partnership - working toward quality and efficiency - would have been preferable.

All the more reason for the industry to change the way it does business. I, too, am a member of a union. When unions and management work together things can get done. But, from what I have seen, historically, from the likes of the UAW, the AFL-CIO, the Teamsters, and even the NEA (in the form of the CTA here) indicates that they are all about self-aggrandizement no matter the cost to clients, stakeholders, and employers. Heck, in CA police unions do okay (not great, but okay) and we are forbidden by law from striking or holding ANY job actions! We can't play hard ball by statute, yet people seem to think we get paid decently and have a decent retirement plan.

But how do you protect the workers you represent when pretty much every advance in plant technology reduces the number of workers needed to run the plant?

I understand that this is what the union does - protect jobs. But, by doing so, they pretty much guarantee the extinction of the industry. I honestly believe that the heads of the UAW have long understood this, but I think they also hoped that the extinction would occur after they had already retired and gone.

The bottom line is that if the industry as a whole does not change, it will collapse. Feeding cash into the system will not work. Throwing money at schools doesn't make them work better or provide smarter children, just as throwing money at poverty programs has not significantly reduced poverty. The industry needs to reorganize and the unions need to be a part of that.

- Carl

[aaron]

I understand that this is what the union does - protect jobs. But, by doing so, they pretty much guarantee the extinction of the industry. I honestly believe that the heads of the UAW have long understood this, but I think they also hoped that the extinction would occur after they had already retired and gone.

Except the reality is, the UAW and Big Three renegotiated their contracts and came to terms they expected to reduce labor costs to competitive levels. That's a multi-year process, and the collapse of the financial system, spike in gas prices, and recession happened to come during the transition.

The writing was on the wall, the union by all appearances did make the necessary concessions (with the usual caveats - e.g., protecting current workers at the expense of new hires), and but for a combination of external factors there's no reason to believe it wouldn't have worked.

Choosing to pursue a business model based upon gas guzzling vehicles? Failing to anticipate and prepare for a recession? Failing to recognize the inevitability of high gas prices? All huge contributors to the present problem. And all outside of the control of the union.

[cdwjava]

Except the reality is, the UAW and Big Three renegotiated their contracts and came to terms they expected to reduce labor costs to competitive levels. That's a multi-year process, and the collapse of the financial system, spike in gas prices, and recession happened to come during the transition.

And now everyone is expecting them to change the way they do business overnight ... even to produce cars for which the technology has not been developed. It takes many years to get a car from design to production, and the talking heads in Washington are trying to use this to pressure the Big Three to produce green cars in a couple of years! That scares me, and if it comes to pass, I am not going to be buying American cars that are under-researched and engineered - I'll buy foreign.

If they want to call it what it is, and call it a nationalization of the auto industry, I'd appreciate the government being honest about that. Almost anyone who speaks on the subject indicates that this will only be the FIRST in a series of bailouts that we will have to throw at the automakers. And what of other industries? How many do we bail out? What criteria do we put on them? Where does it end?

Choosing to pursue a business model based upon gas guzzling vehicles?

No, a business models based on what the consumer was buying. I can't use a small, economy car - I have a family of five. That means ample seating, room for a lot of stuff, and the ability to travel without three boys killing themselves. I need a large vehicle and I really resent the fact that the government may be telling me that I cannot buy what I WANT to buy, and that the manufacturers may have to produce vehicles that the market does not want.

Failing to anticipate and prepare for a recession? Failing to recognize the inevitability of high gas prices? All huge contributors to the present problem. And all outside of the control of the union.

Of course the union is not to blame for the crisis, but they can either step up and be part of the solution, or they can fall as well. If both sides do not make deep concessions, then the industry will collapse. Yes, they'll probably get THIS infusion of cash, but in March or June, when they come back for more, will they get more? With many states facing similar difficulties, the federal treasury is going to be hard pressed to carry all the nation's industries and support the government infrastructure at the same time.

- Carl

[gigirle]

I agree 100% with you here Carl..

Of course the union is not to blame for the crisis, but they can either step up and be part of the solution, or they can fall as well. If both sides do not make deep concessions, then the industry will collapse. Yes, they'll probably get THIS infusion of cash, but in March or June, when they come back for more, will they get more? With many states facing similar difficulties, the federal treasury is going to be hard pressed to carry all the nation's industries and support the government infrastructure at the same time

I don't think it will end within the next month, by all accounts the White House will give them the bandaid needed to stop the bleeding artery at least until March or so.

Aaron...let me clairfy...I expect my cars to go 100,000 miles without needing any major repairs. I got what I asked for, the van I owned just prior to this on was a Chevy Venture and had major electrical problems by 80,000 miles. Like an idiot, I went back for more. I believe this to be the last big vehicle that I will need as the kiddies are growing older.

[aaron]

And now everyone is expecting them to change the way they do business overnight ... even to produce cars for which the technology has not been developed.

It's worse than that, actually. They want to legislate an uneven playing field, where there are "green car" requirements on the Big Three that don't apply to any of their competitors. Effectively forcing them to direct their product lines at the 3% of auto consumers that, at peak gas prices, bought hybrids - and to include costly technologies in every vehicle (such as hybrid systems) that their competitors may omit or include only on high end models.

Almost anyone who speaks on the subject indicates that this will only be the FIRST in a series of bailouts that we will have to throw at the automakers.

We have a "Come to Jesus" moment here - the failure of the bailout is likely to result in a bridge loan drawn from TARP funds. Congress should be telling the auto makers that, when they come back in January, they need to have a bona fide plan for sustainability, backed up by a plan for Chapter 11 bankruptcy - and that if they aren't honest about their needs or aren't willing to truly take the steps necessary to get back on track, they should keep those Chapter 11 plans at the ready because they won't be getting another check.

And what of other industries? How many do we bail out? What criteria do we put on them? Where does it end?

The slippery slope, of course, can be applied in any context. Unless there's reason to believe that we'll be bailing out another industry, there's no reason to say it can't stop here.

No, a business models based on what the consumer was buying. I can't use a small, economy car - I have a family of five. That means ample seating, room for a lot of stuff, and the ability to travel without three boys killing themselves.

So you were 100% behind the Big Three business model that took a nosedive the second gas prices hit $4/gallon? That's great for the Big Three - those vehicles were extremely profitable to produce even under the old union contract - but the issue is it's not a sustainable business model.

Of course the union is not to blame for the crisis, but they can either step up and be part of the solution, or they can fall as well.

But you're again ignoring the many deep concessions unions have already made over the past several years - concessions already projected to bring Big Three labor costs in line with the labor costs at import plants. As contrasted with the zero sacrifices made by management.

[cdwjava]

We have a "Come to Jesus" moment here - the failure of the bailout is likely to result in a bridge loan drawn from TARP funds. Congress should be telling the auto makers that, when they come back in January, they need to have a bona fide plan for sustainability, backed up by a plan for Chapter 11 bankruptcy - and that if they aren't honest about their needs or aren't willing to truly take the steps necessary to get back on track, they should keep those Chapter 11 plans at the ready because they won't be getting another check.

I agree. But, we have an administration coming in to office that will likely be very pro labor and supportive of unions. They will almost certainly offer up another bandaid to avoid being seen as letting down a core constituency. I hope I'm wrong, but i suspect that you will see more money thrown their way, and the blame places squarely with management. I see nationalization of the industry and the development of an industry that will forever need taxpayer support to remain afloat.

Like I said, I hope I'm wrong, but all signs seem to indicate that the road to socialism will be laid, starting with the auto and health industries.

[quote]The slippery slope, of course, can be applied in any context. Unless there's reason to believe that we'll be bailing out another industry, there's no reason to say it can't stop here.
Well ... I seem to recall hearing that only the financial markets would be baile doubt ... now its the auto makers ... what next?

So you were 100% behind the Big Three business model that took a nosedive the second gas prices hit $4/gallon? That's great for the Big Three - those vehicles were extremely profitable to produce even under the old union contract - but the issue is it's not a sustainable business model.

They also could not change production on a dime. I think it takes, what, 5 years for a car to go from design to production? Prior to the sudden and unpredicted rapid rise in gas prices, the buying public wanted luxury cars - ones that could carry their families and their stuff. Economy cars lost them money, big cars did not. The loss was due, in part, to the high labor costs (wages, benefits, legacy, etc.) so they had to make money on the cars that people would pay more money for - the SUV, the van, etc. At the time these cars were designed, the plan may have been viable. In hindsight, it was an oops ... but, hindsight can be perfect because it has the advantage of knowing what has transpired.

But you're again ignoring the many deep concessions unions have already made over the past several years - concessions already projected to bring Big Three labor costs in line with the labor costs at import plants. As contrasted with the zero sacrifices made by management.

I don't know what concessions either side has made. But, if either side digs in their heels, both will die together. And, since labor costs tend to be one of the highest parts of doing business (perhaps THE highest), this is where the dealing must be done by both sides.

If the UAW - or management - wants to dig in their heels, fine ... welcome to unemployment.

Personally, I see Chapter 11 as a viable alternative. Other large industries survived just fine after this, and a lot of their debt was eliminated or restructured as a result. The auto makers can do the same.

- Carl

[aaron]

Like I said, I hope I'm wrong, but all signs seem to indicate that the road to socialism will be laid, starting with the auto and health industries.

I used to live in Saskatchewan. I don't know if you're familiar with Canadian politics or the NDP, but suffice to say, in the modern world even an overtly socialist government doesn't do much to take you down the road to socialism.

Well ... I seem to recall hearing that only the financial markets would be baile doubt ... now its the auto makers ... what next?

You heard that? From whom?

But again, the slippery slope applies in every context. From a logical standpoint, "Oh no, it's another step down the slippery slope" is no less problematic than, "Oh no, it's the first".

I think it takes, what, 5 years for a car to go from design to production?

Depending on the maker, three to five years.

Prior to the sudden and unpredicted rapid rise in gas prices, the buying public wanted luxury cars - ones that could carry their families and their stuff.

Nothing about the rise in gas prices was unpredicted or unpredictable. Nothing.

Again, you're providing a great defense of bad management decisions, but those decisions you're defending are the ones that led the Big Three into this crisis, not their union contracts.

I don't know what concessions either side has made. But, if either side digs in their heels, both will die together. And, since labor costs tend to be one of the highest parts of doing business (perhaps THE highest), this is where the dealing must be done by both sides.

Except the dealing was done to the satisfaction of both sides. The holdup is due to Congress, or more correctly a Republican faction of Congress, that's attempting to punish the unions for supporting Democrats. Don't take it from me - read their memo. None of the Big Three CEO's in the negotiations are blaming the failure of the negotiation on the unions. That should tell you something, right there.

[cyjeff]

I just want to restate this point.

Given the present state of the big three and the unions, does anyone really think they will figure out the magic formula to make everyone happy within ANY realistic time frame... including the next two months?

Therefore, this loan is a gift... and one that, once given, will be used to keep throwing OUR money at the problem under the excuse of "well, we have already spent X and they are getting closer".

Unless realistic, repeat REALISTIC goals, are demanded for the money, it is a joke to think it will do anything more than delay the inevitable.

And Aaron, my point of the current market cap was to make the point that ANY company that needs to secure a loan in excess of total value for two months of operating cash has an idiot for a lender.

And that would be us. They have no meaningful collateral for the loan OTHER than the perceived necessity of their existence itself.

[blueeagle]

[QUOTE=gigirle;269309]
I think employees should look out for themselves as well, but they are running the show. They are overpaid for what they do, not only within the auto industry. They refuse to change and I know I'll catch slack for this comment but if they run themselves out of a job and/or pension, I for one will say ...that's what you get. They are cutting off their nose to spite their face.
[QUOTE]
You don't want employees "running the show?" Don't they have the right to do so? They are the ones who BUILT the company!! It's their blood, sweat, and tears that keep it going!

You consider 28 dollars an hour to be over-paid? Ok....

Still friends?